An annuity makes 5 equal annual payments of 2000 The first p

An annuity makes 5 equal annual payments of $2,000. The first payment begins in exactly 12 years. If the relevant discount (interest) rate is 10, what is the present value (today) of the annuity? None of these are correct. $2,600 $2,073 $3,215 $2,657

Solution

Present Value = $ 2,000 * 1/(1.10) ^ 12 +$ 2,000 * 1/(1.10) ^ 13 +$ 2,000 * 1/(1.10) ^ 14 +$ 2,000 * 1/(1.10) ^ 15+$ 2,000 * 1/(1.10) ^ 16

= $ 2,657.30

Hence, the correct answer is $ 2,657